lesson 20- monetary policy

Question 1

what is a monetary policy

Answer 1

a demand side policy used to influence AD, supply of money and macro indicators

uses
-rate of interest
-money supply
-quantitative easing
-availability of credit and/or borrowing

Question 2

what are interest rates, and the rate of interest

Answer 2

the cost of borrowing and reward for saving
-paid when borrowing money from banks, and received when saving money in banks

-the rate of interest is set by the central bank, and is the base rate for banks to use

Question 3

who sets interest rates

Answer 3

the bank of England, was granted independence to set interest rates inn 1977

-the banks monetary policy committee are the people responsible for setting interest rates and are set a target of inflation of 2 % CPI inflation by the government

Question 4

what is the banks objective

Answer 4

deliver price stabillity ( as defined by the governments inflation target), and to support the governments economic policy including its macro objectives

Question 5

what does the rate of interest set by the bank of England influence

Answer 5

market interest rates

Question 6

how is money supply used as a monetary policy

Answer 6

The bank of England can control how much money is in the country
-they can take money out, or print money
= ‘quantitative easing’- used to stimulate the economy

Question 7

how is credit availability/ control used as a monetary policy

Answer 7

the government and bank (to an extent) can control the amount of credit available to consumers and businesses ( to invest)
-they can set limits/ restrictions on amounts, and who can borrow what
-affects spending/investment